The Real Price of Oil

As oil prices hit their highest levels in a decade, and politicians from Paris to Washington search for scapegoats, it's time to turn attention closer to home: today's high oil prices are less the fault of OPEC than they are a reflection of the last decade's failure to reduce dependence on oil. And unless we use the current crisis as an opportunity to improve fuel economy and diversify energy supplies, we will put the health of both the world economy and the global environment at risk.

After cutting petroleum dependence during the 1970s and 1980s, the world has been on an oil binge during the last decade, raising consumption by 9 million barrels per day. The shift to gas-guzzling sports utility vehicles in the United States, the boom in truck transport in Europe, and the doubling of global air travel in the last 12 years have all played a role in driving oil consumption up. The United States, with 4 percent of the world's population, is consuming nearly one-fourth of the world's oil, and is now importing over half its supply.

Thanks to rising demand, oil consumption is once again beginning to press up against global production limits. Even OPEC's chairman said recently that the cartel's members have little reserve capacity to deploy even if they want to. And virtually all of that reserve is in Saudi Arabia. Meanwhile, the booming economies of Asia and Latin America are working hard to replicate the kind of oil-based economies they see in the north.

A disturbing calculation shows that if China alone were to use as much oil per person as the United States now does, world oil production would have to double in order to supply it. But oil production in many countries is already in decline, and no credible geologist believes that the world will ever come close to doubling production.

These figures show that while oil is abundant enough to meet the energy needs of a billion people in industrial countries today, it cannot meet the needs of more than 6 billion affluent consumers several decades from now.

If continuing oil dependence is unrealistic from a resource perspective, from an ecological perspective it's preposterous. Burning vast quantities of oil also contributes to the inexorable buildup of carbon dioxide in the atmosphere, a trajectory that must end soon if we are not to disrupt virtually every ecosystem and economy on the planet. The real price of oil is not the $34 per barrel that consumers are now paying, but the immeasureable losses entailed in global warming-related melting of the Arctic ice cap or the ongoing destruction of many tropical coral reefs-damage that future generations will not be able to reverse no matter how hard they try.

Just as the economies of the 20th century were fueled by oil, so must this century be powered by a new generation of energy sources. The same technological revolution that created the Internet and so many other wonders can be used to efficiently harness the world's vast supplies of wind, biomass, and other forms of solar energy-6,000 times as abundant on an annual basis as the fuels we now use. These new devices can turn the enormously abundant but diffuse flows of renewable energy into concentrated hydrogen that can be used to fill the world's 'gas' tanks.

Already, the market for these technologies is growing at double digit rates, and automakers that once seemed inextricably wedded to the internal combustion engine are developing a new generation of hydrogen fuel cell cars. DaimerChrysler, one of the first out of the blocks, has committed $1.5 billion to getting 100,000 of these vehicles on the market by 2004. For the first time since the horse and buggy, there is hope that the world's transport fleets can be freed of dependence on oil-fired internal combustion engines.

It's time for energy companies, one of which recently announced that its BP logo stands for 'Beyond Petroleum,' to put their investment dollars where their corporate rhetoric is, and for consumers to stop complaining about oil prices, and start purchasing more fuel-efficient cars. And it's well past time for politicians to stop pandering to consumers by cutting taxes, rather provide targeted tax incentives that will spur the market for a new generation of fuels and engines.